More than a dozen business groups last month filed a much-anticipated lawsuit seeking to block the U.S. Department of Labor’s (DOL) new final rule that will significantly raise the minimum salary thresholds for exempt employees under the Fair Labor Standards Act (FLSA).
The final rule increases the minimum annual salary threshold for exempt executive, administrative, and professional (EAP) employees, as well as outside sales and computer employees from $35,568 per year to $43,888 per year July 1. Then, on Jan. 1, 2025, the minimum salary for overtime exempt status will increase again, to $58,656 per year. The rule will also increase the annual compensation requirement for highly compensated exempt employees from $107,432 per year to $132,964 per year on July 1, and then increase again to $151,164 per year on Jan. 1. After 2025, the thresholds will automatically increase every three years. This change will require employers to either provide salary increases to the estimated two million current exempt employees across the country or reclassify them as non-exempt so they may be eligible for overtime pay.
The lawsuit seeking to block the final rule was filed May 22 in the U.S. District Court for the Eastern District of Texas – the same court that struck down a similar DOL overtime rule issued during the Obama administration seeking to raise the salary threshold for exempt employees. In striking down the Obama-era DOL rule, the court held that the rule focused so much on the employee’s salary level to determine whether the employee was exempt from overtime that it eliminated consideration of their job duties.
The lawsuit filed last month makes similar arguments and contends that the automatic triennial updates to the salary threshold after 2025 would violate notice and comment requirements under the Administrative Procedure Act (APA). The business groups backing the suit, several of which were involved in the prior lawsuit, argue that the new DOL rule improperly makes salary level, rather than job duties, the key determinant of exempt status. They are seeking expedited consideration from the court to block the final rule before it goes into effect next month.
“[We] are back before this court because the department has done it again,” the complaint states. “In direct defiance of this court’s previous order, the department has issued yet another rule raising the minimum salary for the EAP exemption far beyond a level [that the] DOL is permitted to adopt, and again included an unlawful triennial ‘escalator’ provision.”
What Employers Can Do
Barring court intervention before July 1, employers will need to ensure that all qualifying exempt workers are paid on a salary basis and earning at least $43,888 per year or are reclassified as non-exempt employees subject to FLSA minimum wage and overtime requirements. Just as in 2016, if the court enjoins the final rule, even temporarily, it is likely to come at the 11th hour. Employers should continue to monitor the court case and status of the final rule, as well as applicable state and local laws, which often entail higher minimum salary thresholds and stricter requirements regarding exempt employee job duties.
While planning for the rule to go into effect July 1, employers also should also figure out how to pivot if needed if a last-minute court decision changes the landscape. Employers should audit their exempt positions and decide whether to raise salaries to maintain the exemption for qualifying exempt employees or convert employees to non-exempt status to ensure compliance with the rule if it takes effect.
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